3M vs. Commissioner

Jurisdiction

United States, Tax Court and Eighth Circuit

Summary of Facts

The case involves the concept of “blocked income,” where Brazilian law capped royalty rates on IP licenses between a local subsidiary and its foreign parent. The IRS reallocated income despite these legal restrictions.

Key Issues

Whether the IRS can reallocate income classified as blocked due to foreign legal restrictions, challenging the regulatory conditions under Section 482.

Decision and Reasoning

The Tax Court upheld the IRS’s blocked income regulations, with a plurality opinion citing Chevron deference and procedural compliance. The decision included various concurring and dissenting opinions.

Importance and Implications

This case highlights the challenges in dealing with blocked income and foreign legal restrictions. The outcome may affect how multinational corporations handle similar situations and the IRS’s authority in reallocating income.